The government was today expected to announce it would nationalise the struggling mortgage bank Bradford & Bingley, after last-minute attempts to engineer a rescue takeover by Spain's Banco Santander ran into difficulty.

The intention was to place B&B - and its £50bn loan book - in government hands on a temporary basis to give Santander and other possible purchasers more time to decide whether they were prepared to do a deal.

The government chief whip, Geoff Hoon hinted this morning that an agreement had been reached, saying: "We have taken tough, decisive action to sort out the situation and I am confident that in due course, there will be a statement from the Treasury about Bradford & Bingley."

The Treasury chief secretary, Yvette Cooper, told BBC1's Politics Show the government's priority is to protect ordinary savers, but also to ensure the stability of the banking system.

She said: "Certainly the government is stepping in as part of the process and part of the discussions over the weekend. There have been concerns for some time about the Bradford and Bingley business model and the position they have got themselves into."

The opposition expressed alarm about the idea of taking the bank into public ownership. The shadow chancellor, George Osborne, said nationalisation would be a "huge risk" to the taxpayer.

He said: "I think there is a better route. There should be a third option, which is a Bank of England-led reconstruction where, in the end, the large institutional creditors to the bank bear the risk, not the taxpayer.

"I think people will wonder why on earth the British taxpayer is being asked by Gordon Brown to bear the full risk of the mistakes that were made, not just by the management of Bradford & Bingley, but also by the regulatory system that Gordon Brown set up."

MP Philip Davies, whose Shipley constituency in West Yorkshire houses the building society's headquarters, backed Mr Osborne on his third option.He said nationalisation would be a "tragic" end to the institution, leading to possible job losses.

"If we are honest about it and if we are realistic about it, nationalisation is not going to be the best for jobs," he said.

"Not only would any job losses have a devastating effect on the families concerned - because it is such a big part of the local economy - any job loses will have a huge impact on the economy. And anther factor is they spend an awful lot on good causes in the community."

The Liberal Democrat treasury spokesman, Vince Cable, criticised the proposal. Cable, who has called for an independent audit of B&B's accounts to be published, said: "I suspect that a substantial proportion of the bank's assets are of poor quality because of loose self-certification and because of the speculative element in buy to let.

"It's important that the taxpayer is given a full and honest statement of what it is that the government has taken on, even recognising that there was no alternative to public ownership following the collapse of market confidence."

Justin Urquhart Stewart, director of Seven Investment Management, said if B&B was nationalised alongside Northern Rock, the government would be effectively putting the UK's "banking rubbish" in one place to create a "British manure bank".

He told BBC Radio 5 Live: "This means there are going to be job losses, there are going to be issues in terms of extra cost for the government. And of course, extra cost to the Government means extra cost to us."

But Steven Lansdown, chairman of independent financial advisers Hargreaves Lansdown, said nationalising the bank would protect depositors and savers, though shareholders were likely to lose out.

Treasury sources said there was no way the government would allow the bank to open tomorrow with its immediate future uncertain, for fear of a Northern Rock-style run by savers. A B&B spokesman, Tony McGarahan, said: "We can assure customers that their deposits are safe with Bradford & Bingley."

It was feared that B&B shares, which fell to a low of 20p last week after plans to axe 370 jobs were announced, would sink further when the stock exchange opened for trading at 7am tomorrow. The government has been in discussions with Santander for more than a week, but the Spanish do not want to take on B&B's toxic assets without some guarantee of official support, and a deal could not be tied up in time. Temporary nationalisation will give it more breathing space. One option could be for the mortgages to be passed to the nationalised Northern Rock to manage.

The government hopes Santander will still end up buying B&B. An alternative solution is to carve it up between Santander and giant British bank HSBC.

Barclays bank is also understood to have been involved in the talks, but to have walked away. If a commercial solution cannot be found, then the government concedes it will have to remain on the taxpayers' books for some time, posing huge political and financial risks for the Treasury. The move came amid signs that the bank's customers were becoming increasingly alarmed over its parlous state.

Yesterday, Sue Matthews, a 46-year-old housewife from Clifton, Bristol, was one of the many who were transferring their life savings. "I have decided to withdraw all my funds. My savings are bigger than the amount the government promises to protect," she said. In many other B&B branches across the country customers were seeking advice and reassurance about their savings.

A Treasury spokesman said: "We, the FSA and the Bank of England are working closely with Bradford and Bingley to consider the implications for their business of the recent financial turmoil." Nationalisation of the bank is likely to be opposed by the Tory party. Senior sources said the party, which argued against taking Northern Rock into public ownership, was highly sceptical of such a move, and would prefer a direct sale to private hands.

Meanwhile, there have been frantic talks in Washington in an effort to agree a $700bn rescue package for America's beleaguered financial institutions before the markets reopen tomorrow. Talks were also under way over the troubled Wachovia bank.

The urgency to resolve the future of B&B was heightened by concerns about Fortis, one of the largest banks in the Low Countries. Belgian and Dutch officials were fighting over the weekend to maintain confidence after shares in Fortis fell on Friday. Fortis and B&B are the latest in a string of meltdowns around the world, including that of Washington Mutual bank and the distressed takeover of the UK's largest mortgage bank, HBOS, by Lloyds TSB.